Yale, Penn, George Washington sue former students for unpaid Perkins loans

A handful of schools across the country that gave out loans to financially needy students are now suing those students for not paying them back in a timely manner.

According to Bloomberg, schools including Yale University, the University of Pennsylvania and George Washington University have sued former students for defaulting on their Perkins loans, which are federal student loans earmarked for students with extraordinary financial hardship. In sum, students defaulted on $964 million in Perkins loans in the year ending June 2011, which is a 20 percent jump from 2006.

Although the government distributes and collects most student loans, colleges administer Perkins loans. The schools use repayment money to lend to other poor students. But because former students are defaulting on their loans and not replenishing the revolving fund, other needy students may be out of luck when seeking financial help.

President Obama has said he wants to increase funding for the Perkins program from its current $1 billion pot to $8.5 billion. Under his proposal, the Education Department would service the loans instead of colleges.